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Alternative ETFs to Fight the Slump

With sell-off and volatility being the catchwords in the broader equity market since the start of the year, investors might be clueless about the future movement and apprehensive of more corrections lurking ahead. This was true given the steepening of the longstanding woes in the Chinese economy, never-ending worries in the energy sector and an emerging market lull.

Added to this, the return of recessionary threats in the developed economies, the broad-based commodity market rout and a backtracking U.S. economy cast a pall over global growth. The World Bank and the International Monetary Fund (IMF) also lowered their outlook on global growth.

The World Bank expects the global economy to grow 2.9% in 2016, down from the forecast of 3.3% it made in June while IMF projected world economic growth at 3.4% in 2016 and 3.6% in 2017, down 0.2 percentage points for each year from the estimates given last October.

IMF slashed global growth forecasts thrice in less than a year. The agency even curtailed the growth rate of the lone star in the developed economies pack – the U.S. – to 2.6% for both 2016 and 2017, down 0.2 percentage point for each of the years from the October projection.

Along with economic slowdown, corporate earnings recession scared investors. Tensions are back in the U.S. and European financial sectors with the S&P 500 financial index being one of the worst-performing sectors this year (read: Bank ETFs in Trouble?).
Part of the heavy losses incurred by big banks’ shares were because of overvaluation concerns while sluggish capital market activity, high chances of credit default especially from the energy sector  and increased risk aversion are also responsible for the recent rout in the banking sector.

Another stalwart, the technology sector, has also been knocked out in recent trading. The movement can largely be blamed on the crash of LinkedIn (LNKD). Also, growth worries and overvaluation fears sent tech stocks into a lackluster mode. 

All in all, it hasn’t been a very good time to invest in equity markets. Most global benchmarks are in red this year. Last year’s laggard – gold – started regaining the glitter on the safe-haven demand. Long-term U.S. treasuries are also piling up gains despite the Fed liftoff (read: Time for These Buy-Ranked Treasury Bond ETFs).
While safe-haven is definitely an option to play, investors may rev up their exposure to alternative routes. Below we highlight a few alternative ETFs that may beat the recent blues in the market.

U.S Market Neutral Anti-Beta Fund (BTAL)

Investors who want to shift their focus to investing in low beta stocks during this uncertain market environment can consider adding BTAL ETF to their portfolio. This fund tracks the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index which is an equal weighted, dollar neutral, sector neutral benchmark. The index identifies the lowest beta stocks and goes long on them, while at the same time going short on the highest beta stocks. The fund has gained 13.4% so far this year (as of February 8, 2016) (read: Top ETF Stories of January).
ProShares RAFI Long/Short (RALS)
The fund tracks the RAFI US Equity Long/Short Index, which provides equal allocation to both long and short equity positions. The fund has added 2.24% so far this year.

First Trust Morningstar Managed Futures Strategy ETF (FMF)
The fund is an actively managed ETF that seeks to achieve positive total returns that are not directly correlated to the broad market equity or fixed income returns. The fund seeks to provide returns that exceed the performance of the Morningstar Diversified Futures Index. FMF is up 0.8% so far this year.
WisdomTree Managed Futures Strategy Fund (WDTI)

This actively managed fund seeks to deliver positive returns in rising or falling markets that are uncorrelated to equity or fixed income returns. It uses a quantitative, rules-based strategy to provide returns that correspond to the performance of the Diversified Trends Indicator and invests in a combination of U.S. Treasury futures, currency futures, commodity futures, commodity swaps, U.S. government and money market securities.

This strategy seeks to benefit from both rising or declining price trends via long and short positions in commodity, currency, and U.S. Treasury futures market. The fund has added 01.3% so far in the year.

IQ Hedge Market Neutral Tracker ETF (QMN)

This product tracks the IQ Hedge Market Neutral Index, which seeks to replicate the risk-adjusted return characteristics of hedge funds using a market neutral hedge fund strategy. It invests in both long and short positions in asset classes while minimizing exposure to systematic risk. QMN is up over 0.2% so far this year.
Highland HFR Global ETF (HHFR)

This ETF seeks to tracks the HFRL Global Index, which uses all the four hedge fund strategies to select the stocks. These strategies may include event-driven, long/short equity, macro, relative-value and other strategies commonly used by hedge fund managers (see: all the Hedge Fund ETFs here).

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QS-US MN AN-BET (BTAL): ETF Research Reports
PRO-RAFI L/S (RALS): ETF Research Reports
FT-MSR MFSF (FMF): ETF Research Reports
WISDMTR-MF SF (WDTI): ETF Research Reports
IQ-HEDGE MKT NT (QMN): ETF Research Reports
HILND-HFR GLBL (HHFR): ETF Research Reports
LINKEDIN CORP-A (LNKD): Free Stock Analysis Report
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